Name
Abstract | ||
|---|---|---|
Portfolio credit derivatives are contracts that are tied to an underlying portfolio of defaultable reference assets and have
payoffs that depend on the default times of these assets. The hedging of credit derivatives involves the calculation of the
sensitivity of the contract value with respect to changes in the credit spreads of the underlying assets, or, more generally,
with respect to parameters of the default-time distributions. We derive and analyze Monte Carlo estimators of these sensitivities.
The payoff of a credit derivative is often discontinuous in the underlying default times, and this complicates the accurate
estimation of sensitivities. Discontinuities introduced by changes in one default time can be smoothed by taking conditional
expectations given all other default times. We use this to derive estimators and to give conditions under which they are unbiased.
We also give conditions under which an alternative likelihood ratio method estimator is unbiased. We illustrate the application
and verification of these conditions and estimators in the particular case of the multifactor Gaussian copula model, but the
methods are more generally applicable. |
Year | DOI | Venue |
|---|---|---|
2008 | 10.1007/s00780-008-0071-y | Finance and Stochastics |
Keywords | DocType | Volume |
sensitivity calculation · credit derivatives · monte carlo simulation · efficiency · pathwise method,conditional expectation,monte carlo simulation,credit derivative,credit spread,credit derivatives,likelihood ratio,efficiency,monte carlo | Journal | 12 |
Issue | ISSN | Citations |
4 | 1432-1122 | 5 |
PageRank | References | Authors |
0.98 | 1 | 2 |
Name | Order | Citations | PageRank |
|---|---|---|---|
| Zhiyong Chen | 1 | 177 | 25.67 |
| Paul Glasserman | 2 | 496 | 95.86 |